New Draft 1099 Forms Add Lines for Tips, Overtime, and OBBA Deductions: What Self-Employed and Business Owners Should Know

The IRS has released draft versions of Forms 1099-NEC, 1099-MISC, and 1099-K for the 2026 tax year — and they come with some important changes that could affect many self-employed individuals, freelancers, and small business owners.

These draft forms now include new lines for reporting cash tips, overtime compensation, and occupation codes — all tied to the One Big Beautiful Bill Act (OBBA), which introduced new tax deductions for qualified tips and qualified overtime.

At Velin & Associates, Inc., our team is already reviewing these updates to help our clients — from YouTubers and Shopify sellers to doctors, dentists, and high-net-worth professionals — understand how to navigate the new reporting requirements and take advantage of potential deductions.

What’s Changing and Why It Matters

Under the new rules, Forms 1099-NEC and 1099-MISC will include fields for reporting:

• Cash tips received,
• Overtime compensation, and
• Treasury-tipped occupation codes identifying the worker’s role.

Meanwhile, Form 1099-K, typically used for reporting payments through credit card processors or digital platforms like PayPal or Shopify, will also include a field for cash tips.

These additions are part of the OBBA’s goal to make tip and overtime income reporting more transparent — and to allow certain taxpayers to claim new deductions for qualified tips and qualified overtime pay.

Who Can Benefit: Self-Employed Workers and Small Business Owners

For self-employed taxpayers, the law allows a deduction for qualified tips — as long as those tips are reported on a Form 1099 (NEC, MISC, or K) and the business is not classified as a “specified service trade or business” (such as law, accounting, or consulting).

For example:

A freelance videographer or filmmaker who receives gratuities from clients for on-set work could potentially claim a deduction for qualified tips, if those amounts are reported on Form 1099-NEC.

However, this raises a practical issue — most tips received by self-employed individuals aren’t reported on a 1099. For instance, a freelance makeup artist or TikTok creator might receive cash or Venmo tips from clients that go unreported, making them ineligible for the new deduction unless the payor includes it on a 1099 form.

That’s why clear IRS guidance and recordkeeping will be critical going forward.

The Challenge: Reporting Gaps and Transition Relief

The IRS has acknowledged that these new rules create uncertainty — especially during the 2025 tax year, before the 2026 forms are officially in use.

In Notice 2025-62, the IRS announced transition relief:
👉 Employers and payors will not be penalized in 2025 for failing to separately report tips, overtime pay, or occupation codes on 1099 or W-2 forms.

But — and this is important — the notice does not provide guidance for payees (the workers or contractors) on how to claim the new qualified tip or qualified overtime deductions if the information isn’t reported by the payer.

So, for 2025, many taxpayers will need to keep detailed records of their tip and overtime income to support any deductions they plan to claim.

What Velin & Associates Recommends

If you’re self-employed, a business owner, or an independent contractor, now is the time to prepare:

✅ Review how you receive payments. Encourage clients to pay by credit card or platforms that issue Form 1099-K — this increases the likelihood that tips will be properly documented.

✅ Track tips and overtime manually. Even if your clients or platforms don’t yet provide separate reporting, keeping detailed logs of these payments can help you claim deductions later.

✅ Evaluate your business structure. For S-corporation owners or online entrepreneurs (such as Shopify or Amazon sellers), your structure can affect which deductions you qualify for — and how you report them.

✅ Consult with your CPA early. Our team at Velin & Associates, Inc. specializes in helping a wide range of professionals — from CPAs for YouTubers and Shopify Store owners, to Dentist CPAs, Doctors, and High Net Worth Individuals — plan ahead for regulatory changes like this.

Stay Ahead of Tax Law Changes

Tax reporting rules continue to evolve — and with the new OBBA deductions, draft 1099 forms, and transition relief in play, 2025 will be a critical year for preparation.
The best strategy? Plan early, keep documentation, and work with a CPA who understands your industry.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

💬 We help business owners, freelancers, and creators navigate complex IRS changes — so you can focus on growing your business while staying fully compliant.
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